Think About Your Insurance Needs

If you are starting to think about your insurance needs, there is some good news. First, simply by asking you have found the key to saving a lot of money on life insurance. Second, it’s not hard figuring out how much insurance you need. In order to know just how much you must have, start by thinking about your risks and goals.

Risks and Goals
The first step to finding how much insurance you need is to think about your risks and goal. You must think about what would happen if you were to die unexpectedly. Do you have someone who is financially dependent to you and doesn’t have enough income if you die, like a child or a spouse? Do you have enough in assets or savings set aside to cover final expenses? If not, will someone else cover the expenses or would you like to provide some money? Do you want to make sure a child can afford to go to college? Will there be substantial estate taxes and do you have enough money to cover them or your assets are mostly in property that you don’t want sold after you pass away? Do you want to leave something for your family, friends or a charitable organization? Are you exposed to any health risks? Do you suffer from a preexisting medical condition? Do you work in a hospital and where you require medical negligence cover?

If you want to make sure you have the right amount to cover for medical negligence cases, unexpected death and health issues, you must determine what you spend on average each month. The easiest way to do this is to track your spending. After you check your banking and credit card accounts, it’s time to do some projections. You need to think about what you future financial needs are going to look like and take into consideration reduced costs but increased inflation.

Assets and Liabilities
Remember that you need less life insurance as your net worth increases, due to the fact that your assets can create income too. If you have $1,000,000 invested you can generate about $40,000 a year. If you family needs $75,000 a year, you already have $40,000 covered and you will need less life insurance to replace $35,000.  If you don’t have much saved or invested now, do a financial plan and project how much will you save over the coming 10 or 20 years.

Final calculations
Make an excel spreadsheet with projections of your spending, assets and liabilities. Divide your annual projected spending by 4% for each year. Next, subtract the total sum of your assets minus your liabilities. This is how much insurance you need. Although this sum is not exact, it gives you a good idea of you insurance needs. Do the math each year to see if you’re on track. If something changes dramatically, so will your need for life insurance.